Friday, 8 July 2011

Danny Alexander's pensions paper paves the way for further attacks in the future

An unpublished discussion paper that was prepared for the Treasury by Chief Secretary Danny Alexander confirms that the Government has accepted Lord Hutton’s recommendations on reforming public sector pensions.

The public services commission under Lord Hutton spent nine months examining pension schemes covering civil servants, teachers, local government and NHS workers, the police, armed forces and firefighters. Their final report was sent in March to the coalition government who promised to give it “careful consideration.”

A task now achieved in almost record time by Alexander. The Liberal Democrat MP for Inverness and Nairn was originally appointed to the post of Secretary of State for Scotland but was drafted in to the post of Chief Secretary to the Treasury when David Laws was forced to resign over his Parliamentary expenses claims.

Alexanders’ paper commits the government to having its final proposals in place by autumn, followed quickly by legislation to ensure that changes are implemented before the end of this Parliament in May 2015. With no signs of dissent on the issue by either Tory or Liberal Democrat MPs then only the organised opposition of trade union members stands in their way.

Although the paper states that public service pension provision - in the world’s sixth largest economy with a Gross Domestic Product of £1.3 trillion - should not be ‘a race to the bottom’ it’s difficult to see how asking workers to contribute more over a longer period and then receive less can be described as anything else. Especially when you throw in the fact that the government is to cut its own contributions, and also intends introducing a fixed Treasury ceiling that would pave the way for future further increases in workers’ contributions.

And there’s also the fact that they intend preventing workers in voluntary sector bodies and housing associations from being able to join any future schemes. Of course whether any of them would want to is another thing as the changes, if forced through, will: -

Bring the normal pension age of public sector pensions members in line with the State Pension Age, which by rising steadily over the years will reach 68 by 2044.

Cut by 30% the amount a new civil servant can expect from their pension with smaller decreases for those who’ve already been paying and who will be moved from the final salary scheme when it is replaced by a career average revalued earnings scheme.

By seeking to protect those earning less than £15,000 a year from paying more expect those on a £1 more to contribute at least 3.3% extra per annum. A case of robbing Peter to pay Paul.

Move the uprating of public sector pension entitlements from the Retail Price Index across to the Consumer Price Index. On this, the fact that both parties in the coalition government promised during the election not to do any such thing appears to be one more thing that can be added to a long list of broken promises, especially from the Liberal Democrats. Over the last decade the CPI has on average been 0.8% less and although calculating the exact amount that will be lost, by a public sector pensioner, is difficult it’s thought to be around £20 a week.

If all this is bad enough then don’t forget that the government’s fixed rate ceiling could well pave the way for something even worse! Food for thought for all those unsure of taking action.